GIPS Performance Presentation Standards

If every asset manager could compute its own "track record" however it liked — cherry-picking a lucky account, excluding closed funds that blew up, or reporting gross returns while a competitor reports net — track records would be useless for comparison. The Global Investment Performance Standards (GIPS) are a voluntary rulebook, maintained by the CFA Institute, that fixes this by standardizing how firms calculate and present historical performance. A firm that claims GIPS compliance must group every similar account into a defined "composite" (so no cherry-picking single winners), include every fee-paying and non-fee-paying account that fits the strategy, weight returns by asset size, and disclose both gross and net-of-fee figures along with a measure of dispersion across accounts in the composite. Compliance is verified by an independent third party, not self-certified.

The practical effect is that a pension consultant or retail investor comparing two managers' 10-year annualized returns can trust the numbers were built the same way — no survivorship bias from quietly dropping a terminated fund, no return-smoothing tricks, and no mixing a single stellar account with the firm's broader (weaker) results. GIPS doesn't guarantee good performance; it guarantees the performance number means what it claims to mean.